Embedded Value: Knowing why a group insurance policy is ideal

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In a group insurance plan, all members of a pre-existing group enjoy uniform or graduated coverage through a single policy issued by insurers. Employees of a specific company or members of a cooperative society or customers of a specific bank are considered as a group for the insurance cover.

The Covid-19 pandemic is ravaging individuals, families, society and various social and business organizations. In the absence of a strong and viable social security system, the financial needs of surviving family members are unfortunately left to chance. It is in such a situation that the existence of a group insurance plan can provide some reassurance.

In a group insurance plan, all members of a pre-existing group enjoy uniform or graduated coverage through a single policy issued by insurers. Employees of a specific company or members of a cooperative society or customers of a specific bank are considered as a group for the insurance cover.

Group bonus
Typically, term insurance plans are offered to eligible groups. Since the group premium rate is much lower than what an individual would pay for similar risk cover, group members benefit from a much higher sum insured for the same amount. Insurers prefer large to very large groups for this purpose, but for simple term insurance protection, a group of at least 25 people is considered viable by insurers. The term of the policy is one year, renewable annually by the timely payment of the premium by the primary policyholder, the employer in the case of a company.

All new employees or members are automatically covered by the group policy and those who retire or leave the organization cease to have coverage from the effective date. The sum insured may be different for different categories of employees and the premium must be paid accordingly. Under group plans, riders for broader coverage such as dual accident and/or permanent disability benefits are also provided.

Uninterrupted protection
Nowadays, critical illness endorsements are also required by employee and employer groups. Non-life insurers offer group health insurance plans where the premium per individual is much lower than what one would pay individually. Based on mortality experience, insurers either reduce the premium for a few years or offer higher risk coverage thereafter without increasing the premium.

The benefit of this scheme is uninterrupted insurance protection for a long duration without individuals having to worry about submitting a plethora of forms and even medical reports to insurers and maintaining premium payment records etc. Only one simple form may be needed to be submitted for registration of the candidate’s name.

The individual’s contribution to the plan is made through a system already in place. For example, the employer deducts the amount of the bonus from the salary or makes a contribution from his income account. For groups of savings bank account holders, the premium is deducted from the account each year and paid to the insurer.

Borrowers from a bank can also take out a mortgage redemption policy by subscribing to the group plans available from the banks’ partner insurers. Joining such a scheme by paying a single premium at the time of borrowing or opting to have the premium paid as an additional amount with the EMI ensures that in the event of the borrower’s premature death, the lender will not will not demand the balance of his heirs. The insurance company would reimburse the amount still due on the date of the borrower’s death. Whether it is a home, a car or a personal loan, such a device proves to be a huge relief for the surviving family members.

The author is former General Manager and CEO of Star Union Dai-ichi Life

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